(a) Explain the Operation of Petty Cash Book using imprest system. (b) Outline two disadvantages of the imprest system of bookkeeping in petty cash book. (c...

(a) Operation of the Petty Cash Book under the imprest system

The petty cash book is a subsidiary book used to record small, routine cash payments (for example, stamps, taxi fares, tea, cleaning materials) that are too trivial to pass through the main cash book. Under the imprest system, the petty cashier is given a fixed sum of money in advance, called the imprest or float, for a definite period (usually a week or a month).

1. At the start of the period the petty cashier receives the float, say N5,000, from the chief cashier.
2. During the period the petty cashier makes the small approved payments and records each one, supported by a petty cash voucher, on the credit (analysis) side of the petty cash book.
3. The payments are further classified under analysis columns (postage, travelling, stationery, sundry, etc.) so that expenditure can be posted in total to the ledger.
4. At the end of the period the petty cashier totals the payments made. The chief cashier then reimburses exactly the amount spent, so that the float is restored to its original fixed figure at the beginning of the next period.

Thus at the beginning of every period the petty cashier always holds the same fixed amount. In effect: Cash in hand + amount reimbursed = original imprest.

(b) Two disadvantages of the imprest system

• If the fixed float is too small, the petty cashier may run out of money before the period ends and be unable to meet legitimate small payments.
• It ties up cash idly in the hands of the petty cashier and can encourage fraud or misuse if vouchers are not properly checked and authorised.

(c) Five uses of a petty cash voucher

1. It serves as documentary evidence that a petty cash payment was actually made.
2. It authorises the petty cashier to release cash for the stated expense (it is signed by an approving officer).
3. It shows the details of the transaction: date, amount, purpose and person paid.
4. It acts as the source document from which entries are made in the petty cash book.
5. It provides an audit trail and helps in checking and controlling petty expenditure against fraud.